Returns Are Gaining Momentum At Arcure (EPA:ALCUR)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Arcure (EPA:ALCUR) and its trend of ROCE, we really liked what we saw.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Arcure:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.059 = €957k ÷ (€21m - €4.7m) (Based on the trailing twelve months to December 2024).

Therefore, Arcure has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 13%.

Check out our latest analysis for Arcure

Above you can see how the current ROCE for Arcure compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Arcure .

What Can We Tell From Arcure's ROCE Trend?

Shareholders will be relieved that Arcure has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 5.9%, which is always encouraging. While returns have increased, the amount of capital employed by Arcure has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

What We Can Learn From Arcure's ROCE

As discussed above, Arcure appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 56% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Arcure can keep these trends up, it could have a bright future ahead.

Arcure does have some risks, we noticed 4 warning signs (and 2 which are potentially serious) we think you should know about.

While Arcure may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.